Media outlets are abuzz following a joint investigation report released by Amnesty International and African Resource Watch (Afrewatch) on January 18th titled “This is What We Die For: Human Rights Abuses in the Democratic Republic of Congo Power the Global Trade in Cobalt”. The report investigated human rights violations in the cobalt supply chain and rebuked several big brands, like Apple and Samsung, for failing to ensure that their products do not contain cobalt extracted by children in the DRC. In this post, we discuss the regulation of cobalt (or lack thereof), examine the report’s findings and discuss the potential supply chain brand risks associated with DRC-originated cobalt.

Cobalt: Not Technically a "Conflict Mineral"

Cobalt is utilized in myriad products, particularly consumer electronics, and is an essential element in lithium-ion batteries. High demand for smartphones and the rapidly growing electric automotive industry have also stimulated demand for the metal. However, there is no regulation of the global cobalt market, which has resulted in non-governmental agencies like Amnesty International conducting comprehensive investigations to shed light on child labor in the cobalt supply chain.

Currently, cobalt does not fall under existing “conflict minerals” rules in the USA as stipulated by the Dodd-Frank Act passed by Congress. The rules require that companies disclose the use of “conflict minerals” in their products. These include tantalum, tin, tungsten, and gold – also referred to as “3TG”. The elements are mined in the Democratic Republic of Congo (DRC) and used in a variety of components that go into high-tech products and automobiles. The intent of the Rule is to reduce a significant source of funding for armed groups that are committing human rights abuses, including the exploitation of child labor, and contributing to the conflict in the eastern DRC.

As it is, ongoing litigation concerning key reporting and disclosure requirements has made conflict mineral compliance and 3TG transparency an industry-wide challenge.

So where does cobalt fit into all this?

It is important to note that 50% of the world’s cobalt supply is sourced from the DRC, but since it is not included in conflict minerals legislation, companies have no legal obligation to disclose their use of cobalt from the DRC.

When it comes to sourcing an industrially significant yet now controversial resource like cobalt, child labor and slave labor is a tremendous brand risk, and companies can be unwittingly implicated. Due to complex supply chains and a lack of multi-tier visibility, companies may inadvertently turn a blind eye to conditions in the supply chain until unpleasant realities confront them.

The Report's Findings

In the report, Amnesty International detailed the unregulated, dangerous, and unhealthy conditions at the cobalt mines in the DRC. The investigation found that children as young as 7 would work in “artisanal” mines for up to 24 hours at a time without the most basic of protective equipment, such as gloves, work clothes, or facemasks to shield them from lung or skin disease. According to UNICEF, approximately 40,000 children worked in mines across the southern DRC in 2014, most of whom would work beyond twelve hours a day, carrying heavy loads to earn a pay between one to two dollars a day.

The report explains how traders buy cobalt from areas in the DRC where child labor is prevalent and sell it to Congo Dongfang Mining (CDM), a wholly owned subsidiary of Chinese mineral behemoth Zhejiang Huayou Cobalt Ltd. (Huayou Cobalt). Using investor documents, Amnesty International discovered that Huayou and its subsidiary CDM process the cobalt before selling it to three battery component manufacturers: Ningbo Shanshan and Tianjin Bamo in China, and L&F Materials in South Korea. These three component manufacturers (that bought more than $90 million worth of Cobalt from Huayou Cobalt in 2013) then sell the processed cobalt to battery makers who supposedly supply big name technology and car companies. It’s these three manufacturers that serve as the link between a long litany of consumer brands and child mining in the Democratic Republic of Congo.

Brands Now Tasked to React

Asserting that numerous big brands have failed to do their due diligence and address human rights risks in their supply chain, the report noted 16 consumer brands that are either direct or indirect customers of the three aforementioned battery component manufacturers. Among these listed brands are big names like Apple, LG, Daimler, Microsoft, HP, Samsung, and Lenovo, to name a few.

In efforts to quell the imminent consumer and non-governmental scrutiny generated by the report, most of these brands have already released public statements addressing the allegations of transparency negligence. According to the report, Apple did not confirm or deny whether it receives components from Huayou Cobalt, but said that cobalt is among the materials for which it is conducting due diligence. Microsoft is quoted as stating, “we have not traced the cobalt used in Microsoft products through our supply chain to the smelter level due to the complexity and resources required,” but iterated that “Microsoft is fully committed to the responsible sourcing of raw materials used in [our] products” and “specifically engaged with organizations that are focused on addressing human rights issues in mining.”

A Proactive Approach

Seeing these brands frantically respond to Amnesty International’s report is understandable, and in a way, they’ve been caught in a tricky situation trying to protect their reputations. Since litigation has not required these big names to disclose information regarding their cobalt suppliers, there had yet to be a significant impetus for these companies to look further into their supply chains and verify the conditions at their cobalt suppliers. A lack of supply chain visibility and transparency effectively put them in a reactive position where they’re forced to reckon with the publicity after the fact, rather than take proactive measures to prevent such brand risks.

Given the ubiquity of cobalt in consumer goods, this report can be taken as a wake-up and a possible harbinger for future legislation. It demonstrates how important multi-tier visibility is in identifying potentially harmful cogs throughout their supply chains. Brand risk management should be taken as seriously as general supply chain risk management because, in many regards, reputation is everything in a fiercely competitive global marketplace. Companies shouldn’t have to wait for legislation to inform their corporate social responsibility (CSR) perspective, but rather, should look ahead. Amnesty International’s report not only reminds companies of the importance of up-to-date CSR reporting, but also the importance of developing deeper relationships with their suppliers. Utilizing supply chain network mapping services help companies develop a more transparent and manageable supply chain and avoid potential brand risks.

Confronting the ethical and humanitarian issues that could be hiding in the shady nooks of your end-to-end supply chain is neither easy nor enjoyable to think about. Yet, for the sake of your business’s brand and operations, it’s a necessary inspection. Due to a lack of supply chain visibility, some businesses are caught off guard when accused of using conflict minerals from unverified sources or utilizing slave labor at some stage of production – activities which may have transpired at a sub-tier level despite the company’s efforts to prevent them. With a greater public focus on corporate social responsibility, the widespread use of social media, and the advent of better technology for mapping sub-tier supplier visibility, businesses need to take a deeper look at the inner-workings of their supply chains to avoid the wrong attention.

In this post, we explore three modern supply chain brand risks that could be sabotaging your supply chain without your knowledge: counterfeit materials and products, slave labor and human trafficking, and conflict minerals.

1. Counterfeit Materials and Products

While globalized supply chains and world markets have given businesses tremendous opportunities to grow and thrive, broad global demand also stokes the production of counterfeit goods and intellectual property infringement. Counterfeiting is a tremendous brand risk because its prevalence affects all industries at various levels, from the consumer to the brand owner to the companies that unwittingly utilize or sell fraudulent products.

In the pharmaceutical industry, for example, counterfeiting poses tremendous consumer health and safety risks. At every corner of the pharmaceutical supply chain – from sourcing raw materials to production to distribution – there are plenty of opportunities to interject mislabeled, forged, or fake ingredients and materials. In 2006, over 78 people died in Panama from ingesting a cough medicine that used unauthorized ingredients from China. It was discovered that the cough syrup contained diethylene glycol (used in antifreeze) instead of glycerin, an inactive ingredient in most cough syrups. Authorities found that barrels were mislabeled to indicate they contained glycerin, when in fact the barrels were full of diethylene glycol.

2. Slave Labor and Human Trafficking

Slavery and human trafficking are crimes under state, federal, and international law. Yet slavery and human trafficking still exist in every country, even in the United States. From mines to factories, forced labor and child labor plague supply chains worldwide, yet consumers inadvertently abet these crimes by purchasing goods whose production is facilitated by slave labor. Due to the criminal natures of slavery and human trafficking, they are usually hidden from view and challenging to uncover, making it difficult for procurement professionals to assure their supply chains do not unwittingly involve exploitative labor.

Moral bankruptcy aside, the use of forced labor is a supply chain brand risk your business should be avoided at all costs. In September 2009, the United States Department of Labor released a report detailing 122 goods from 58 countries believed to be produced by labor in violation of international standards. Governments and consumers are demanding that businesses act to implement ethical sourcing programs. If found to be sourcing from suppliers using exploitative labor, a business can face legal ramifications, suffer reputational damage, and risk losing both consumer confidence and market share.

In recent years, significant legislative efforts have been underway to identify and punish perpetrators of slave labor and human trafficking. However, there has been a lack of legislative momentum towards addressing the wider market for tainted goods and products. Given your supply chain is compliant with international labor laws, publishing a formal statement of supply chain compliance can help assure supply chain integrity, build consumer trust, retain market share, and ensure compliance with international labor laws.

3. Conflict Minerals Rules

The term “conflict minerals” refers to minerals including tantalum, tin, tungsten, tantalum, and gold – also referred to as “3TG” – that are utilized in the production of various products, predominantly consumer electronics. In 2010, the United States Congress passed the Dodd-Frank Act which requires certain companies to disclose their use of conflict minerals, due to concerns that the exploitation and trade of conflict minerals by armed groups is helping finance genocide in the Democratic Republic of Congo, one of the main sources of these metals. As per the U.S. Securities and Exchange Commission, the Conflict Mineral Rule requires: 1) the company files reports with the SEC under the Exchange Act, and 2.) the minerals are “necessary to the functionality or production” of a product manufactured or contracted by said company.

However, ongoing litigation concerning key reporting and disclosure requirements has made conflict mineral compliance and 3TG transparency an industry-wide challenge. The Dodd-Frank Act requires compliance from nearly 6,000 companies, companies which are waiting for answers from nearly 250,000 suppliers. If a company sources minerals from the region, it must determine if they are from banned sources and report the findings to the SEC. Dodd-Frank compliance can be an arduous and expensive process, but it pales in comparison to the potential bad press, damage to reputation, and loss of business from non-compliance.

Nevertheless, some of the world’s biggest companies, like HP and Intel, have made commitments to being “conflict-mineral free.” Though difficult promises to upkeep, they’ve recognized the inherent brand risk of non-compliance, having proactively invested in conflict mineral compliance solutions to improve their supply chain transparency. Conflict mineral compliance services can help achieve reporting compliance, manage on-going compliance risks, increase the level of sub-tier engagement, and provide a repeatable process for quality data collection and reporting.

Take Proactive Measures

Though mired in geo-political complexity, the aforementioned brand risks are not untreatable – they just require transparency and proper protocol. Once supply chain visibility solutions are put in place, you can more easily root out malignancies in your supply chain. Strategic implementation of these services can establish a track record of ethical procurement activities, encourage investment in your business, and strengthen the brand. In short, resiliency pays off.

As the first wave of conflict-free products start hitting the market, the supply chain management and conflict minerals compliance bar inches higher.

Intel Corp. earlier this year introduced its first conflict-free microprocessors, and promised to extend its conflict-free program to its entire supply chain and all its product lines. And, a few weeks ago, news reports coming out of England and papers such as The Guardian announced the availability of Fairphone, a crowd-funded conflict-free smartphone that was designed to meet stringent ethical and environmental standards and is being dubbed by some as “the most ethical mobile handset on the market.”and conflict minerals compliance bar inches higher.

We expect to see more announcements like these in the coming quarters as companies look to carve out competitive advantages from their latest corporate social responsibility program.

Growing awareness about the sourcing and use of gold, tantalum, tin, tungsten and the adoption of track-and-trace mechanisms to help publicly traded comply with the U.S. Securities and Exchange Commission reporting mandate will fuel these “We did it. We’re conflict-free” press releases.

On the flip side, we also expect to see many other executives scratching their heads and wondering how their competitors got so far so fast with their conflict-free initiatives. The amount of end-to-end supply chain visibility required to comply with the conflict minerals reporting requirements will still cause their share of supply chain management, operational and planning headaches.

Creating the right mix of supply chain visibility and conflict mineral compliance

Finding the right balance between regulatory compliance and program investment is something many companies struggle with on a normal, day-to-day basis. It becomes even more complex when the effort involves engaging with multiple tiers of upstream suppliers you may not have ever heard about and sourcing minerals from a region you only just found on a map because new regulations obliged you to learn about the Democratic Republic of the Congo.

Savvy companies take a few key steps as they strive to reach conflict-free status and bring conflict-free products to market. They include:

Using supply chain best practices to increase visibility and supplier engagement

Integrating a supply chain mapping and monitoring solution to improve their conflict minerals compliance track record

Adopting a holistic approach where conflict minerals reporting, superior track-and-trace capabilities and supply chain risk management programs are complimentary to each other

A conflict-free supply chain may sound like a mammoth challenge. But, with the appropriate strategy and supply chain management software solutions, you, too, may soon join the ranks of leading companies wowing end-users and competitors with conflict-free product news.

Read our latest whitepaper co-written with leading experts at RGP here on how to get the most out of first year reporting's lessons.

You may have noticed the phrase “conflict minerals” constantly popping up in the business-world vernacular lately. But are you still scratching your head trying to understand what all the noise is about and what it means to you?

Welcome to the club.

While supply chain and risk management managers have had to come up to speed on this buzz topic rather quickly because new and evolving regulations puts the track-and-trace burden squarely on them, it’s not been an easy learning curve.

And for those not directly involved in supply chain and risk management planning and execution, you’re not completely off the hook or able to shrug it off as a passing trend. Public companies across all industries, including high tech, automotive and life sciences, are impacted and will be held responsible for filing mandated conflict minerals reports. Additionally, employees in all departments from engineering to legal to finance will have to contend with sourcing and supplier relationship changes, too.

Here are a few questions we have been getting from clients who are beginning to dive into the complex world of conflict minerals management and compliance. We hope our Conflict Minerals FAQ helps you steer your own plans forward.

What are conflict minerals?

(A) Columbite-tantalite, also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted), or their derivatives;

or

(B) Any other mineral or its derivatives determined by the U.S. Secretary of State to be financing conflict in the Democratic Republic of the Congo (DRC) or an adjoining country that shares an internationally-recognized border with the DRC, which presently includes Angola, Burundi, Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia.

How did this come about?

In August 2012, the SEC adopted a provision mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require public companies to publicly disclose their use of conflict minerals that originated in the DRC or an adjoining African country.

Congress enacted the conflict minerals mandate because of the humanitarian crisis linked to the exploitation and trade of conflict minerals. Armed groups use these minerals to finance a civil conflict in the DRC region.

Under the legislation, companies must report their use of conflict minerals if those minerals are “necessary to the functionality or production of a product.” Companies had to file their first specialized disclosure report covering the 2013 calendar year on May 31, 2014, and will continue to file these reports annually every May 31.

What is 3TG? What are they used for?

3TG is a shortened catch-phrase referring to the red-flag minerals of tungsten, tantalum, tin and gold, which are frequently mined in or around the conflict region of the DRC.

These minerals are found in numerous parts used to produce automotive, aerospace, construction and industrial machinery, medical and dental equipment and electronic device, to name just a few. In the electronics industry, for example, impacted 3TG metals might include tin in solders for joining circuits, tantalum in capacitors, tungsten in electrodes and gold in integrated circuit wiring.

How can my company comply? What should be included in a conflict minerals compliance program?

One of the first steps is to understand what minerals are used in and are necessary to your company’s products or manufacturing process, and identify which suppliers provide parts containing these minerals. Companies must also conduct country-of-origin surveys with their suppliers to assess where the minerals are sourced, and implement due diligence measures to track and trace the chain of custody of their conflict minerals.

Any successful conflict minerals compliance program, however, should go beyond just supplier-level reporting and include product and part-level insights. Being able to include sub-tier suppliers increases confidence that compliance problems are not “hiding” outside the tier-one supply chain. Likewise, compliance solutions should have the ability to map bill-of-material (BOM) data and report conflict mineral dependency at a product or group of products level.

More broadly, conflict minerals compliance should be integrated into other sourcing and risk mitigation practices and capabilities in order to capture greater visibility across the entire supply chain. Taking this step not only improves the integrity of conflict mineral reports but also opens up opportunities to forge stronger supplier relationships, reduce redundancies throughout the supply chain operation and lower the company’s overall exposure to risk.

How can we collect the required information from multiple-tiers of suppliers?

Educating and onboarding suppliers were among the biggest challenges companies faced during the first year of the conflict minerals reporting cycle. It’s not a problem that will likely go away anytime soon.

To address this, many companies are re-evaluating their existing processes and developing ways to expand their visibility to their sub-tier suppliers. In addition to building out compliance measures, leading companies are clarifying supplier roles and responsibilities; developing one, two or three-year plans to assess conflict minerals compliance gaps and identify potential supply chain risks, and better mapping suppliers and parts worldwide.

By creating more awareness and engaging the suppliers more directly in the process, companies and suppliers will develop a more standard way of communicating conflict minerals concerns up and down the supply chain.

What lies ahead?

With one year under their belts, many executives are now looking ahead to see what reporting challenges still need to be addressed and which best practices could be replicated or expanded throughout their supply chain operations.

By all counts, it will continue to be a roller coaster ride as companies learn to navigate this changing landscape. But, with a little help, smooth sailing towards full conflict mineral compliance could go from a pipe dream to reality.

Now that the first round of reports tracing conflict minerals has been filed, companies want to know where to go next. They are looking for ways to improve their ongoing monitoring process, get better data from more suppliers and improve their overall compliance status.

Luckily, lessons learned are emerging which could help smooth over bumps as companies expand their conflict minerals management programs this year.

Take, for instance, some of the guidance listed in this white paper “Conflict Minerals Reporting,” an analysis of the conflict mineral filings submitted this past June done by Schulte Roth & Zabel LLP (SRZ), a law firm specializing in Conflict Minerals Rule compliance, and the Conflict-Free Sourcing Initiative (CFSI), which is furthering due diligence in the minerals supply chain.

One of the more surprising things SRZ and the CFSI found was that there was only a relatively small number of filers for the 2013 calendar year–only 1,315 Form SDs (special disclosure forms required for conflict minerals reporting) were filed. The Securities and Exchange Commission estimated that 6,000 issuers would have filing obligations under the new conflict minerals requirements.

This means, for 2014, more companies will have to file reports, and many others are expected to modify or update their previous disclosures as they enhance, extend or evolve their existing supplier surveys and conflict minerals track-and-trace initiatives, SRZ and CFSI note. Additionally, companies will face increasing pressure from non-governmental organizations (NGOs) and institutional socially responsible investors (SRIs), who were critical of the recent filings and argued that companies did not perform sufficient due diligence or reasonable country of origin inquiries (RCOI).

Mastering Internal Controls

As hordes of new filers come onboard and companies remain under fire to understand changing legislation and more readily comply, a variety of trouble spots could arise this reporting year.

To alleviate some of these issues, SRZ and CFSI recommend that companies continue to define their risk mitigation strategies and make process improvements to their conflict minerals program framework.

Along those lines, our partner, Resources Global Professionals (RGP), which also analyzed a portion of the year-one filings, found that many companies lacked or did not develop a conflict minerals control framework.

With a process, system and management controls, companies can better manage their compliance risks on an ongoing basis and provide greater assurances to senior management prior to filing, according to RGP.

We expect to see companies place a strong focus on internal systems and framework development this year, along with a handful of other mainstays including improved supplier engagement and integrating conflict minerals reporting into the broader risk management strategy.

It may sound like a tedious step forward, but without the right foundation, hurdles from first year’s reporting cycle will persist.

Looking to get a leg up on conflict minerals compliance? Read our “Turning Conflict Minerals Reporting Challenges Into Competitive Advantages” white paper for insights about the latest trends. Download it here for free.

The U.S. Commerce Department's list of smelters may help companies track 3TG, but perhaps not as much as expected.

The U.S. Department of Commerce recently published its much-awaited list of all know smelters and refiners known to process tantalum, tin, tungsten or gold, the so-called conflict minerals.

But, even the DOC, with it extended global reach and access to information from multiple organizations, admits in its report that it does “not have the ability to distinguish” which facilities are actually funding the conflict in the Democratic Republic of Congo and adjoining countries.

This is what the DOC said about its challenges in collecting this level of data:

“During Commerce’s research of global smelters, certain hurdles to creating a list of all known processing facilities became clear. Primarily, there are artisanal miners that process small amounts of materials and are known to be employed in eastern Congo. Because these producers of metals are ‘off the grid,’ it is very difficult to trace exactly where these small amounts of materials are smelted.

There is also evidence of guerilla smelting operations throughout Africa that create makeshift smelters which produce an intermediary product of tantalum, tungsten and tin, and then ship the product overseas to scrap yards and informal metal traders and exchanges. The materials are often transshipped to another country and then flaked or shaved prior to being sent to a smelter.

Finally, we note that gold purchased through the Shanghai Gold Exchange (SGE) accounts for 15-20 percent of all the gold used for commercial purposes. It is also recognized that the vast majority of the gold sold worldwide is comingled at the SGE. The SGE has not released, nor does it keep, records of where its gold is sourced. Therefore, any material that is purchased through the SGE is untraceable to a smelter, refiner or processor of origin.”

So, if the DOC is struggling to verify the source of origin of these minerals and cannot determine whether or not the sale of these raw materials is funding militia groups in and around the DRC, how are businesses going to successfully do their own due diligence on this complex issue for conflict minerals compliance? The primary reason why the SEC mandated publicly traded companies to track and trace these minerals was to curb the humanitarian crisis and limit how money was flowing back into a guerilla war happening in that African country.

As the DOC smelters list and report shows, compliance with Section 1502 of the Dodd-Frank Act is, in fact, proving to be a difficult task for many companies, something we see first hand and is emphasized in this recent FCPA blog.

Still, despite the challenges, companies publicly traded on U.S. stock markets will have to find a way to meet these regulations.

The DOC report, though inconclusive about how conflict minerals, smelters and militia groups are linked, provides companies with a starting point worth reviewing. The Commerce Department provides a comprehensive list of more than 400 refinery and smelter sites.

In addition to that, companies can improve their compliance initiatives by:

Focusing on their supply chain visibility and mapping capabilities

Engaging with, training and onboarding multiple tiers of suppliers

Integrating their conflict minerals program into their risk management strategies.

Companies that see these challenges as opportunities will earn more than compliance merits. They’ll create competitive advantages, increase their value and mitigate risk.

Download this white paper to find out how companies are preparing for this year’s conflict minerals reporting cycle and how they’re overcoming due diligence obstacles.

By now, most people working in the supply chain industry know all too well about the Dodd-Frank Wall Street Reform and Consumer Protection Act and the U.S. Security and Exchange Commission’s provision requiring tracking and tracing conflict minerals.

But, even the most knowledgeable people working day-in and day-out with the regulation and its related compliance issues are still confused and frustrated by the whole thing, especially those in the high-tech and automotive sectors who have been most directly affected.

This was apparent at the recent IPC Conflict Minerals Conference held in Santa Clara, California. Industry executives, well-versed lawyers and compliance-solution providers openly voiced their concerns, doubts and worries about the scope of the law, its inherent complexity, ongoing compliance issues and program maintenance.

Supply Chain Risks That Come With Compliance

Despite the collective shoulder-shrugging that has many people wondering what lies ahead as the Dodd-Frank requirements transition into routine supply chain form-filling documentation, there are a number of challenges companies and industry experts have identified that may help guide supply chain professionals through this year’s reporting round.

These are a few things worth keeping an eye on in the coming quarters:

Legalese is still being debated. The U.S. courts, government offices and industry associations are still wrangling over wording and definitions included in the original and revised legislation. Phrases such as compound metals, de minimis exemptions and derivatives are being re-examined, and many people are waiting for written clarification from the SEC or for pending litigation cases to be finalized. The outcomes of these cases, clarifications and conversations could change the interpretation of certain facets of the law or how companies respond. Some of this has already played out via the revised specialized disclosure and conflict minerals report templates (SD/CMR) companies had to fill out and file; the various iterations meant companies had to resurvey suppliers and dedicate resources to collecting and re-reporting updated information.

There’s an international wave coming. The current law does not only affect U.S. companies. Global companies that publicly-trade on U.S. stock exchanges must comply, and worldwide suppliers, regardless of whether they are private or public, are being asked over and over again to respond to SD/CMR requests and surveys. Also, like with many regulations, other regions will likely follow the U.S. lead and establish similar conflict minerals reporting criteria. Europe, for instance, is likely to take a stand on this issue soon as the European Commission recently proposed an integrated EU approach and is looking into a “responsible trading strategy for minerals from conflict zones.” Depending on how this shakes out, the next waves of annual reporting may have to factor in international compliance mandates.

If you want supplier buy-in, you’ll need to educate them. We’ve seen it with our clients and heard stories from others about how tough it’s been to get multiple-tiers of suppliers onboard with conflict minerals reporting. The issue is complicated by the fact that companies have to go far down the supply chain, well beyond the first couple tiers of suppliers, to track down country-of-origin mining and smelting operations. These surveys and checks have generated a range of supplier answers from “I have no idea what you’re talking about” to "What is 3TG" to “This is the only information I have” to “I don’t know how to help you.” The trickle-down effect means many red flags will be raised on the sub-tier supplier level and a more concerted effort will be needed to continue doing due diligence across the entire supply chain.

All of these things, plus many others we’ll discuss in future blog posts, add more risk to the supply chain and will continue to do so for the foreseeable future. Being aware of how the conflict minerals landscape is still shifting is a key first step. Figuring out how to manage through these changes will be equally important.

Check back soon and read our post about best practices that are being developed in this area.

Not sure what’s next for conflict minerals regulations in year two? Sign up for this upcoming webcast, and hear about the ongoing risks companies face and the innovative solutions leaders are adopting.

It was the headache most supply chain professionals expected it to be. The first year of conflict minerals reporting required by U.S. Security and Exchange Commission (SEC) brought with it frustration, confusion and varying levels of compliance.

We’ve seen first hand and heard anecdotally about all sorts of challenges related to regulatory compliance, legal interpretations (or misinterpretations), source of origin identification, and tracking the red-flag 3TG minerals of tin, tantalum, tungsten and gold coming from or around the Democratic Republic of the Congo (DRC).

It’s been a roller-coaster year, and very few companies have been able to achieve full compliance with year one conflict minerals reporting. In fact, a majority of report filings did not even satisfy the SEC’s instructions, according to an analysis by global professional services firm Resources Global Professionals, something Kevin Deely, RGP’s senior practice director for supply chain risk and compliance, will discuss in more detail during our upcoming webcast.

The Law That Put Conflict Minerals in the Spotlight

In case you haven’t lived through it directly, here’s some background. The short version is that in August 2012, the SEC adopted a provision mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require companies to publicly disclose their use of conflict minerals that originated in the DRC or an adjoining country.

Congress enacted the conflict minerals provision because of the humanitarian crisis linked to the exploitation and trade of conflict minerals used by armed groups to finance a civil conflict in the DRC region.

The part of the story that has turned companies and supply chain professionals upside down for the last two years comes down to a key legislative phrase and the report filing timeline. Companies had to disclose their use of conflict minerals if those minerals are “necessary to the functionality or production of a product,” and they had to file their first specialized disclosure report covering the 2013 calendar year on May 31, 2014. Publicly-traded companies will have to continue to file these reports annually every May 31.

Since the law was passed, companies have scrambled to understand what minerals were necessary to their products or manufacturing, conduct country-of-origin inquiries, and implement due diligence measures to track and trace the chain of custody of their conflict minerals.

Full supply chain mapping and supplier on-boarding are just a couple of the many other costly challenges identified last year. There has also been a widespread feeling of baptism-by-fire, where companies, trade associations and legal bodies are wrangling over how to decipher legislative wording, making distinctions between metal compounds and conflict mineral derivatives, and looking to improve their compliance track record in the wake of changing national and international regulations.

Looking Into the Crystal Ball

The bumpy reporting ride will continue into year two, if talk in the supply chain community is true. Many executives are still struggling to understand the entire scope of the provision, address data quality issues, survey suppliers across multiple tiers of the supply chain and develop controls to ensure program sustainability and auditability.

Leading companies have started to carve out an advantage. They see conflict minerals reporting as a conduit for increasing their supply chain visibility and a way to meet other supply chain risk and compliance objectives. They’re looking to create a supply chain that is more flexible to changing markets needs and emerging regulations, and create more dynamic and reliable communication flows with multiple tiers of suppliers globally.

As the initial sense of legislative surprise fades and conflict minerals reporting becomes a more every day thing, now’s the time for companies to decide how a conflict minerals program could add value to their supply chain process and think about what other opportunities can be captured as a result.

How did companies manage through the first year of conflict minerals reporting? What are they planning for year two? How can supply chain mapping improve conflict minerals reporting compliance? Sign up for this upcoming webcast, and find out.